QROPS Frequently Asked Questions
What are QROPS?
A QROPS , which stands for Qualifying Recognised Overseas Pension scheme, is an overseas pension scheme which has been recognised by HMRC as fulfilling certain criteria, namely that the terms and benefits of the scheme are broadly similar to those in the UK. A QROPS enables UK pension holders to transfer their pension to a scheme in another jurisdiction.
Who can apply for a QROPS?
You can apply for a QROPS pension transfer, whether you are a UK resident or a UK non-resident, between the ages of 18 and 75.
If I have bought an annuity, can I still transfer to a QROPS?
No, you must transfer to a QROPS before you buy an annuity.
Once I transfer my pension into a QROPS, will I have to buy an annuity?
No, although if you want to do this, you can. As you don’t need to purchase an annuity, you are free to invest in other assets and have the advantage of being able to pass these assets to you beneficiaries upon death. However, in certain circumstances, buying an annuity may be tax advantageous.
Can I transfer my state pension into a QROPS?
No, QROPS cannot accept state pensions.
Can I put several UK pension schemes into a single QROPS?
Yes, and this is one of the significant benefits of a QROPS, to be able to consolidate all of your pensions into a single scheme, which makes it much easier to manage and administer.
What is the QROPS Member Payment Provision Period?
The Member Payment Provision Period is the period of time during which any transfer made to a QROPS member could be deemed to be an unauthorized payment, and subject to an unauthorized payment charge by HMRC.
This period is currently 5 years of complete, consecutive tax years outside of the UK. After the QROPS plan member has been outside of the UK for this period, no unauthorized payment charges would apply.
However, note that from 6 April 2012, HMRC extended the reporting period to 10 years from the date of the transfer out of the UK pension into the QROPS scheme.
What is a ‘Pension Commencement Lump Sum’?
A Pension Commencement Lump Sum (or ‘PCLS’) is the amount of your pension fund that you are permitted to withdraw as a tax free lump sum on retirement. For most QROPS schemes, this sum is between 25% and 30% of the fund value at the time of withdrawal.
How much can I withdraw as a tax free lump sum with a QROPS?
It depends on the jurisdiction in which the QROPS is established, but generally varies between 25% and 30%. Malta, New Zealand and the Isle of Man all allow a maximum of 30% of the pension value to be taken out as a lump sum.
I’ve already started taking my pension benefits. Can I transfer?
It depends on what benefits you are taking. If you have bought an annuity, then it is too late, and you can’t transfer into a QROPS. Similarly, if you have a final salary pension and have started to receive your pension, then again you can’t transfer into a QROPS scheme. However, if you have a defined contribution pension scheme, and are taking income drawdown, then you can still transfer this pension into a QROPS pension.
How do I know that the QROPS my adviser is recommending is legitimate?
The HMRC publishes (every 2 weeks or so) an updated list of all of the QROPS schemes that it has approved. You can find it here – http://www.hmrc.gov.uk/.
What types of pensions can I transfer into a QROPS?
There are a wide variety of pensions which can be transferred into a QROPS – personal pensions, corporate pension, defined contribution pensions, defined benefit pensions (‘final salary pensions), armed forces pensions, teachers, NHS pensions, local authority pensions, police pensions, SIPPS, Protected Rights, GMP.
In fact, you can transfer pretty much any UK pension into a QROPS apart from the state pension.
How is my QROPS Pension Income taxed?
As with all pension schemes, a QROPS pension will be subject to income tax in the jurisdiction in which it is established. However, subject to double taxation treaties in place between the QROPS jurisdiction and the country where the QROPS plan member is resident, income may be able to be paid gross to avoid double taxation. For example, Malta has over 60 double taxation treaties in place. In addition, depending on where you live, you may be liable to pay income tax under the tax laws of that country.
What happens if I move back to the UK after transferring to a QROPS?
The terms of the QROPS scheme will stipulate that the plan member has an obligation to inform than QROPS administrator that they have returned to the UK permanently. The QROPS administrator will then inform the HMRC that you have returned to the UK.
You can keep your QROPS pension, and any lump sum payments and income draw down will revert to UK rules. However the pension assets within the QROPS will continue to be subject to the rules of the tax authority in the country where the QROPS is based. In addition, any pension income may be subject to tax where the QROPS is based, in addition to income tax in the UK – so it will be necessary to look at any double taxation agreements between the QROPS jurisdiction and the UK.
Please note that you should only consider a QROPS if you intend to leave the UK permanently.
Is there a minimum pension value to transfer into a QROPS?
No, there is no statutory minimum. It used to be the case up until a couple of years ago that fixed costs and expenses used to mean that a QROPS transfer was only economically viable for pensions with a transfer value of at least £100,000. However, today there are a number of excellent products on the market which will allow a transfer value of as little as £25,000.
What about a maximum transfer value?
Again, there is no maximum value for transferring into a QROPS pension scheme. Although if the transfer value is in excess of £1.5 million (for the tax year 2013/2014), then this will breach the Lifetime Allowance, and may attract a tax charge on the excess.
After I have retired, how much income can I withdraw each year?
There is no obligation to purchase an annuity with a QROPS, so if you start to draw down an income from your pension, the withdrawal limits will be set broadly in accordance with the UK government’s GAD (Government Actuary’s Department) tables. These tables stipulate how much income can be taken per year, per £1000 of capital in your pension fund.
Can I withdraw 100% of my pension as a lump sum?
No. This loophole was firmly closed by the HMRC is 2012, as a result of certain QROPS administrators in New Zealand and unscrupulous advisers setting up schemes to enable UK pension holders to bypass the pension rules in order to withdraw 100% of their pension.
A pension is designed to provide an income for life. Unfortunately, many people have spent their pension windfall, and will face serious financial problems in years to come.
Do I have to be a UK citizen to transfer my UK pension into a QROPS?
No, anyone, irrespective of nationality, can transfer their UK pension into a QROPS – if you have lived and worked in the UK, and have acquired UK pension rights, then you can transfer your pension into a QROPS, provided you have permanently left the UK.
How long will it take to set up my QROPS?
UK pension transfers are very document intensive, and generate a lot of paperwork. In general, a rule of thumb would be between 6 weeks and 3 months after commencing the transfer process. Much depends on the administrative efficiency of the UK pension plan administrators, whose documentation requirements vary from administrator to administrator. Our advisers will ensure that everything proceeds as smoothly as possible, and keep you informed every step of the way.
What happens to my QROPS pension if I die?
The QROPS pension holder can nominate beneficiaries within the QROPS documentation itself, which will ensure that the full value of your remaining pension fund will pass to your family without any payment of inheritance tax.
What are the costs involved with a QROPS?
Each QROPS scheme will have its own specific costs and charges, but in general there are 3 main costs that you will need to factor in:
- Set-up Costs. The set up costs of a QROPS transfer will vary between £200 for a low cost QROPS to around £1,200.
- Annual Management Charge. Again, these fees will vary depending on the QROPS provider, but will generally be between £200 and £1,200 per year.
- Fund Management Charges. These fees relate to the fees of the investment funds themselves. These fees vary from fund to fund, depending on the type of funds, and the fund manager, but usually range from 0.5% to 1.5% per annum.
It needs to be borne in mind that the cheapest QROPS provider may not necessarily be the best. Your QROPS adviser will be able to guide you on selecting a cost effective, well run, reputable QROPS provider.
Do I need to liquidate my assets from my UK pension before transferring them to my QROPS?
This depends on the type of UK pension scheme that you have. If you have a SIPP or a SSAS, then it may be possible to transfer the existing assets, in specie, across to the QROPS. However, for most private UK pension schemes, it will be necessary to liquidate the assets, and transfer the funds over to the QROPS.